Study: State income tax cut won’t spur small business

A group that supports a progressive income tax said Monday that letting the temporary income tax increase expire won't help small businesses in Illinois.

By Doug FinkeState Capitol Bureau

A group that supports a progressive income tax said Monday that letting the temporary income tax increase expire won't help small businesses in Illinois.

The Center for Tax and Budget Accountability said its study showed property taxes are a bigger burden for businesses than income taxes.

“Some argue, ‘Let the (income) taxes expire. That's the right thing to do,'” said CTBA executive director Ralph Martire. “While that argument certainly has a little populist appeal, it is absolutely wrong based on the evidence.”

Martire said the group's study shows that corporate income taxes comprise just 8 percent of the business tax burden in Illinois. The burden is just less than 5 percent for the many small businesses that pay income taxes under personal rather than corporate rates, he said.

“Property taxes are the one tax that are difficult for businesses to pay, particularly small business,” Martire said. “It is a hard cost a business has to pay irrespective of its profitability.”

In Illinois, reduced state assistance for education has meant a higher burden on local property taxes to pay for it.

If the temporary income tax increase is allowed to expire, it will take with it several billion dollars of revenue, Martire said. That money could be spent on education and infrastructure, two things proven to be factors in economic and wage growth in other states, he said.

“It matters particularly for small business to invest in education because small businesses hire primarily through the local labor market,” Martire said. “They need their local schools to produce quality workers.”

The CTBA has endorsed the progressive income tax in which higher rates are applied to higher incomes. Martire said that would produce “an adequate” amount of revenue that could be used on schools and infrastructure.

The Senate is expected to consider a progressive tax amendment to the Illinois Constitution. A House committee has already rejected the idea.

Gov. Pat Quinn has called for the temporary income tax increase to be permanent. The personal rate is now 5 percent, but that is scheduled to drop to 3.75 percent on Jan. 1 unless the tax is extended.